Major Cycle*(Long-term trend lasting several months to years) Positive

* Cycle status is based on S&P 500.

Market Overview – What We Know:

Major indexes posted small gains Thursday. Biggest gainer, Value Line index, was up .61%. NYSE advances/declines were positive by 1.78 to 1 and NYSE up/down volume was ahead by 1.71 to 1. Short-term trend remains negative.

Our VIX-based short-term volatility indicator continues to correct Minor Cycle excesses accrued from June 24 lows (22%) through early August highs (98.3%). Indicator was last at 24%.

Daily MAAD was positive Thursday by 15 to 4. After threatening intermediate-term uptrend in effect since last November on Tuesday, Daily MAAD has recovered and could equal August 14 new high with only 13 positive issues. Daily MAAD Ratio was near “Neutral” at .95.

Daily CPFL was negative by 9.1 to 1 Thursday and for fifth session in row. Indicator also declined to new short-term low. Most recent high was made June 24. Indicator remains below uptrend line stretching back to November lows and just above long-term trend begun in October 2011. Daily CPFL Ratio was “Oversold” at .52.

Market Overview – What We Think:

Two days of marginal recovery have allowed S&P 500 to reclaim 30% of losses suffered Tuesday, but strength was staged on declining volume to suggest price improvement over past two days is suspicious.

While short-term price-based oscillators are “Oversold” along with CPFL and to lesser extent MAAD at “Neutral,” still negative short-term trend nonetheless leaves market in tentative position. Also, “Oversold” conditions can persist early in larger cycle trend reversal and could merely be reflection of new larger cycle negative.

In other words, if short-term “Oversold” conditions do not “bite” to extent they spur more buying, more selling could simply extend near-term losses while putting larger Intermediate Cycle in jeopardy. Odds are even months-long intermediate-term advance may be in end game.

In background there is lingering potential for problems on larger cycles in that fall period has historically been backdrop for some of worst declines in stock market history. Think October 1929, October 1987, and October 2007.

Index

Price Channel Stops (10-Bar MAs of Highs/Lows )

Weekly

Monthly

8/26

8/27

8/28

8/29

8/30

8/30

8/31

S&P 500 Index

BUY1681.87

BUY1676.45

BUY1671.54

BUY1667.79

BUY1665.75

SELL1627.03

SELL1422.19

Dow Jones Industrials

BUY15340.58

BUY15278.43

BUY15215.94

BUY15156.92

BUY15114.85

SELL15062.62

SELL13195.39

NASDAQ Composite

BUY3653.04

BUY3646.18

BUY3641.40

BUY3638.86

BUY3640.89

SELL3455.72

SELL3007.61

Value Line Index

BUY3928.38

BUY3916.77

BUY3906.77

BUY3900.98

BUY3897.76

SELL3740.46

SELL3107.83

Note: Stop levels, a function of the extant trend, are based on the trailing moving average price channels for the Highs or the Lows of an index. Whether or not a specific index is suggesting a “Buy” or Sell” is determined by whether or not index prices are above or below the current channel Stop levels. Stop levels should only be used as an entry or exit guide and in conjunction with other market entry and exit strategies.